The change in terms of the contract for the sale of Oriente crude oil from Petroecuador to Phillips 66 – which the latter won at auction – is causing controversy, as it would cost the public transportation company Flopec at least $5 million economically.

But the award achieved after the signing of the contract in this operation, in which 1,800,000 barrels were sold and whose shipments left already in October last year, is lower than those achieved in other competitions.

Although the award contract and its bases agreed to transport crude oil by Panamax and Aframax vessels (operated by Flopec), it was accepted that it could be transported by Suezmax vessel (although there was a restriction by Flopec). Suezmaxis, being larger vessels, represent a lower cost of transportation for the company that buys them. However, they are not used because the state company does not have them.

Unofficial company sources indicate that the cargo from this operation, under normal conditions, would have generated a payout of $13.8 million for Flopec, but the change of ships represented only a payout of $8.2 million. That’s $5.6 million less than stated. In terms of reward, with the vessel change, the company was able to deliver $0.05 more per barrel, although rewards achieved between June 4, 2021 and January 30, 2023 range between $1 and $2.50.

The current general manager of Petroecuador, Reinaldo Armijos, who was open to explaining the whole process as an act of transparency, recognizes the change in conditions, but denies that there was favoritism towards the private company and justifies the changes since the request of the said company was fulfilled, due to a fortuitous event. He explains that the problem that arose in the Panama Canal at the time was that the flow of ships was not the same with sufficient water levels. Due to low water, the queue that lasts one or two days is extended to 8 and 15 days, depending on the size of the vessel.

The management of this commercial operation is known at the moment when a new sale of crude oil is underway, this time for 11.2 million barrels, and that according to the previous announcements of the Armijos manager, it will have conditions similar to the sale to Phillips 66, in order to achieve favorable results for the country.

The operation began on September 8, when a tender was announced for the export of 1,800,000 barrels of Oriente crude oil for October 2023, which according to its principles should be delivered in five shipments of 360,000 barrels each (+/- 5%). . The transport had to be done by Panamax and Aframax ships (operated by Flopec) via the Balao terminal, although the possibility of doing it via Punta Gorda was also considered, always with Panamx and Aframax ships. On September 22, the envelopes were opened and the winner was Phillips 66. The bid price was a difference of -$2.64.

However, on September 28, the company requested a change in terms. This was due to problems they were unable to prevent due to low water levels in the Panama Canal causing delays in the delivery of crude oil to their customers. The company requested in writing that “as a gesture of strong partnership, we would appreciate it if you would allow us to lift one load on the Suezmax and one load on the Aframax, for this contract.”

The Panama Canal is reducing the number of ships passing through each day due to the drought

The management of Petroecuador asks Flopec if it can issue approval in this regard, despite knowing that there is Resolution GGR 032 2023, which limits the use of Suezmax-type vessels and that the allocation they referred to “I did not consider this option.” In any case, at the request of Petroecuador, Flopec agrees to this change.

On September 29, Petroecuador informs Phillips 66 that its request has been accepted and is told: “In addition, taking into account the management carried out by Petroecuador, I hereby thank you for your support to receive the premium for the difference offered,” taking into account the financial optimization of your client.” In response, the private company responds that “as compensation for this change, we are offering an additional $0.05 on top of the price offered in our tender.” That would mean just over $54,000 extra. In addition, he thanks Petroecuador for its goodwill. In this way, the deal is closed.

For Armijos, what happened happened because of the company’s request due to random problems that usually happen both with companies that do business with Petroecuador and with Petroecuador itself when it cannot fulfill its deliveries, for example due to ruptured oil pipelines. It is more a matter of reciprocal treatment for the manager to allow this type of change. But it also says there is a clause within the contract: 2.19 which indicates that “once awarded, the terms and conditions may only be varied by written agreement between the parties.”

He emphasizes that the order was technically evaluated with Flopec, because Petroecuador does not make decisions alone. Consider that in reality Flopec does not lose because it charges 10% of what it rents. He believes that the good synergy with which Petroecuador and Flopec are currently working has allowed better differences.

As for the reward, he comments that in commercial terms an increase of one, two or three cents is already profit. On the other hand, he believes that if they had remained in the initial position, it would have created a feeling in the company that we are not reciprocal. “The commercial issue is something delicate and we have to be open, see what can be solved,” he says.

The Panama Canal will reduce shipping due to the drought

On the other hand, he assures that for the new process, which was opened in October, and in which Phillips also won with a difference of -1.09 dollars, the company again requested that it be done via Punta Gorda and with larger ships. . But this time it is not possible to do it because the conditions are not suitable. Petroecuador does not have the necessary products to supply, there is no fortuitous event like the Panama Canal and Flopec would hardly accept a change of this kind at this time.